Agricultural firms look ripe for the taking

Analysts and industry executives anticipate the pace of consolidation among agricultural companies to increase in the coming 12 months as deep pocketed global players move to diversify production risk.

More than $6 billion has been spent on agriculture acquisitions in Australia, a figure that will rise beyond $7 billion if
AWB
shareholders agree to a takeover by Canada’s Agrium at a meeting on November 16.

Agrium has followed Canadian agribusiness Viterra to Australian shores. Viterra bought South Australia’s biggest grains handler
ABB Grain
for $1.6 billion last year.

There are a number of agricultural groups that appear ripe for the picking, analysts say.

GrainCorp
, which may have dampened its takeover appeal if it had pulled off its proposed $856 million takeover of AWB earlier this year, is viewed as an attractive acquisition.

While global grain giants may shun its newly acquired malt business, United Malt Holdings, its assets are compelling.

GrainCorp has a network of about 280 country grain-storage sites and seven grain and two non-grain export terminals.

“
GrainCorp
warrants corporate appeal, as following Agrium’s acquisition of AWB, it will be the last remaining significant grain company capable of being taken over," RBS analyst Belinda Moore said.

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Western Australia’s CBH Group was ruled out as it is a co-operative, she said.

Singapore’s Olam International (which is in merger talks with France’s Louis Dreyfus) and Wilmar International have been active buyers of Australian agricultural businesses.

Olam outbid Louis Dreyfus to acquire Queensland Cotton for $166 million in 2007 and later bought the almond assets from collapsed
Timbercorp
.

Wilmar, meanwhile, has moved on CSR’s sugar business in a deal worth $1.75 billion.

Other potential buyers include China’s Bright Food and Sinochem. Viterra, keen to enter rural services, could also be a buyer.

Struggling rural services group
Elders
, animal feed producer
Ridley
, wheat and cotton farmer
PrimeAg
and sugar producer
Maryborough Sugar Factory
are among a shrinking list of companies that could be taken over.

Australian agricultural companies are viewed favourably because of their proximity to Asia, which means lower freight costs for producers.

Asian demand for wheat, barley and canola is forecast to climb 39 per cent in the next decade.

As well as this, Australia has also become a focus for international companies since wheat markets were deregulated in 2008. The former monopoly exporter, AWB, is likely to fall to Canada’s Agrium by December.

The surging Australian dollar has made assets more expensive, but it is being mitigated by soaring soft commodity prices that have climbed by as much as 40 per cent this year.

Commonwealth Bank agri-commodity strategist Luke Mathews said farmers throughout history had responded to increased global demand for food.

But this time around there was a major difference.

“Around 40 per cent of US domestic corn consumption is used for ethanol," Mr Mathews said.

“A decade ago it was 9 per cent. That is significant. The fact that that didn’t exist 10 to 15 years ago gives cause for higher than average prices."